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Rescue of German bank falls through, G4 summit closes

Article published on the 2008-10-05 Latest update 2008-10-06 06:23 TU

(L-R) Italian Prime Minister Silvio Berlusconi, German Chancellor Angela Merkel, France's President Nicolas Sarkozy, British Prime Minister Gordon Brown and European Commission President Jose-Manuel Barroso (Photo: Reuters)

(L-R) Italian Prime Minister Silvio Berlusconi, German Chancellor Angela Merkel, France's President Nicolas Sarkozy, British Prime Minister Gordon Brown and European Commission President Jose-Manuel Barroso
(Photo: Reuters)

As the meeting of leaders from Europe's four biggest economies closed on Saturday, the German bank Hypo Real Estate (HRE) said a 35 billion euro rescue deal had collapsed. HRE announced the withdrawal of a consortium of German banks that, along with the ECB and the German government, had been due to deliver cash to help the bank that is currently crippled with debts.

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Germany's largest bank, Deutsche Bank, was reported to have estimated HRE's need for capital at 20 billion euros by the end of the coming week, with the figure growing to 50 billion euros by the end of 2008. HRE's debts stem from its subsidiary, Depfa, that it bought in October 2007 and its share price dropped by 75 per cent at the start of last week.

In Germany private banks will meet with officials from the Finance Ministry on Sunday in an effort to find a solution before markets open on Monday morning.

In Paris, a mini-summit brought European leaders together on Saturday and saw a series of broad points of consensus established. These call for "real and complete reform of the international finance system". French president Nicolas Sarkozy called for a meeting of the G8 countries to consider the response to the current financial crisis.